MERIDIAN SEES $1B COST IN CABLE PLAN
16 September 2008PAUL GORMAN
MERIDIAN ENERGY is warning that it makes better economic sense for it to spill water or become a South Island-only business than to comply with a controversial government ruling.
The state-owned generation and retailing company is preparing for battle with the Electricity Commission over who pays for a modern inter-island power link. It says the existing arrangement would cost it about $1 billion.
A leaked document also shows Meridian would prefer, for purely commercial reasons, not to have the high-voltage direct-current (HVDC) link that includes the Cook Strait cables.
Meridian is angered by a commission decision that South Island generators alone should pay for the link because it allows them to profit from selling electricity to the North Island.
Meridian and other South Island generators Contact Energy and TrustPower say the decision is nonsense, and the costs of running and paying for a much-needed $672 million upgrade should be borne by all, including North Island generators.
They are using this year's drought, which led to low southern hydro-lake levels and a risk of electricity shortages, to show South Islanders have increasingly become beneficiaries of the link.
Meridian spokesman Alan Seay said that in recent winters, electricity had regularly flowed from north to south. Following the commission's logic, that gave North Island generators access to the South Island market so they should pay.
Meridian hasformally requested a public conference on plans to upgrade the link, which will be held in Wellington on Monday.
A proposal by national grid company Transpower to revamp Pole 1 of the link has been accepted by the commission, which will make a final decision after the conference. The upgrade will include new equipment at Benmore and the Haywards substation, near Wellington, and will allow the link to transfer 1000 megawatts of power at any instant from 2012, and up to 1200MW from 2014.
In September 2005, Contact Energy and Meridian Energy won a High Court case against the commission, the court ruling that it had not consulted widely enough. Earlier that year, Contact, Meridian and TrustPower criticised the commission for what they called a last-minute change to maintain the status quo and keep them paying for the HVDC link.
A Meridian submission to the commission said it endorsed the "general proposition" that an HVDC upgrade was in the public interest. A document leaked from a commission briefing quoted Meridian's strategy integration manager, Guy Waipara, as saying the upgrade would "cause a private detriment to Meridian in the order of $1 billion".
During the next 20 years, Meridian expected to lose $150 million to $200 million from spilling water. That would be offset by a rise in earnings of $450 million to $600 million.
However, investing in the HVDC upgrade, forecast to cost Meridian between $650 million and $700 million, would lead to a $1 billion turnaround in its finances. The option of spilling water became more attractive because the cost of doing it was "three to four times less [than] the cost of the HVDC link [upgrade]".
"It is a major discrimination against South Island business, Mr Seay said.
"If we had our pure commercial hat on, we would have no choice but to argue against it, because the costs imposed on us are greater than the benefits we receive."
©2008 Fairfax New Zealand Limited.
Dominion Post
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